financial report

Transcription

financial report

2015
FINANCIAL REPORT
TA B L E O F C O N T E N T S |
SENIOR MANAGEMENT REPORT
and FINANCIAL INFORMATION 2015
04
Letter From Joe Ferguson and Harold DePriest
05
Board of Directors
06
07
EPB Senior Management
EPB Financial Highlights
15
Report of Independent Certified Public Accountants
17
EPB Management’s Discussion and Analysis
27 Financial Statements
31
Notes to Financial Statements
55
59
Required Supplemental Information
75
Supplemental Information
Independent Auditor’s Report on Internal Control
2
L E T T E R F RO M J O E F E RGUSO N A N D H A RO L D D E P R I EST |
3
L E T T E R F RO M J O E F E RGUSO N A N D H A RO L D D E P R I EST |
September 11, 2015
As we look back at the achievements of fiscal year 2015, two traits that continually define who
we are hold true. They are our relentless pursuit of innovation and extraordinary commitment to
customer service. Evidence of both was apparent in the highly successful installations at Alexian
Village and in the delivery of free high-speed Wi-Fi at the airport. In addition, an ambitious vision for
the future is demonstrated in the cultivation of partnerships with the nation’s greatest minds and
training the next generation to pursue innovative thinking.
There is one thing that makes all of this possible. It is our people.
The people of EPB are hard working, dedicated, brilliant thinkers who provide solutions and superior
customer service to our community. They push the boundaries of what is possible in order to better
serve our customers, as demonstrated in our accomplishments throughout this year. The Smart
Grid and Fiber Optics have opened many doors and presented a vast array of opportunities for
increased research, new product offerings, added conveniences and economic efficiencies. We
took full advantage of those opportunities and continue to do so as we grow, learn, and pursue a
better future for this community we serve. It is our responsibility. And we count it a privilege.
Joe Ferguson Harold DePriest
4
B OA R D O F D I R E C TO RS |
BOARD OF DIRECTORS
JOE FERGUSON
WARREN LOGAN
JON KINSEY
Chairman
Vice Chairman
Member
JOHN FOY
VICKY GREGG
Member
Member
5
EPB SENIOR MANAGEMENT |
EPB SENIOR MANAGEMENT
HAROLD DEPRIEST
DAVID WADE
GREG EAVES
KATIE ESPESETH
President & CEO
Executive VP & COO
Executive VP & CFO
VP New Products
JIM INGRAHAM
MARIE WEBB
DIANA BULLOCK
STEVE CLARK
VP Strategic Research
VP Human Resources
VP Economic Development &
Government Relations
Senior VP Strategic Systems
DANNA BAILEY
DAVID JOHNSON
KATHY BURNS
J.ED. MARSTON
VP Corporate Communications
VP IT & CIO
Senior VP Customer Relations
VP Marketing
RYAN KEEL
KADE ABED
VP Technical Operations
VP Field Operations
6
|
EPB FINANCIAL
HIGHLIGHTS
7
EPB FINANCIAL HIGHLIGHTS |
EPB FINANCIAL HIGHLIGHTS 2015
EPB operating revenues were $671.0 million, an increase of 2.5 percent from the previous year. This
increase was mainly due to a net increase of approximately $16.9 million in Fiber Optics sales revenues.
Net plant value increased to $613.1 million, an increase of 3.3 percent from the previous year. Areas of
plant investment included electric overhead and underground line extensions, substation equipment, fiber
optics communications equipment, and Smart Grid equipment. EPB is the largest taxpayer in Chattanooga
and Hamilton County. The tax equivalents expense and transfers to the cities and counties in EPB’s service
area totaled $19.4 million, an increase of 6.0 percent over the prior year and an increase of 27.7 percent
in the last four years. These increases are due mainly to the Electric System’s capital expenditures on the
Smart Grid.
8
OPERATING REVENUES (in thousands)
$654,611
$700,000
$650,000
$600,000
$589,475
$618,552
$671,041
$625,486
$550,000
$500,000
$450,000
$400,000
$350,000
$300,000
2011
2012
2013
2014
2015
NET PLANT VALUE (in thousands)
$565,755
$650,000
$550,000
$569,891
$593,462
$613,093
2013
2014
2015
$522,157
$450,000
$350,000
$250,000
$150,000
2011
2012
TAX EQUIVALENTS EXPENSE & TRANSFERS (in thousands)
$20,000
$18,055
$18,000
$16,000
$15,234
$18,341
$19,449
$16,815
$14,000
$12,000
$10,000
$8,000
$6,000
2011
2012
2013
2014
2015
9
EPB —
ELECTRIC SYSTEM
FINANCIAL HIGHLIGHTS 2015
EPB provided electric service to 178,289 customers in a 600 square mile area - an increase of 2,618
customers from FY 2014. As shown below, billed electric sales revenue for these customers resulted in
$539.6 million and other revenue of $28.0 million. Residential customers paid an average of 10.71 cents
per kwh - 14.7 percent less than the national average. Net electric plant value totaled $535.8 million while
transfers to the City of Chattanooga and electric expenses totaled $567.4 million.
ELECTRIC REVENUES
Other
$27,977,000
5%
Outdoor Lighting Systems
$6,069,000
1%
Large Commercial
$256,158,000
45%
Small Commercial
$45,460,000
8%
Residential
$231,864,000
41%
10
ELECTRIC NET PLANT
Other
$6,562,000
1%
Distribution
$401,111,000
75%
Buildings & Improvements
$51,956,000
10%
Construction Work In Progress
$9,997,000
2%
Furniture, Fixtures, & Equipment
$35,957,000
7%
Transmission
$30,254,000
5%
ELECTRIC EXPENSES AND TRANSFERS TO THE CITY OF CHATTANOOGA
Tax Equivalents
$17,855,000
3%
Provision for Depreciation
$35,245,000
6%
Maintenance Expenses
$22,023,000
4%
Operation Expenses
$35,292,000
6%
Interest Expense
$12,980,000
3%
Purchased Power
$443,970,000
78%
11
KILOWATT HOURS PURCHASED (in millions)
6,184
6,009
6,015
6,006
5,912
2011
2012
2013
2014
2015
KILOWATT HOURS SALES (in millions)
5,983
5,829
5,716
5,702
5,570
2011
2012
2013
2014
2015
AVERAGE COST PER KWH PER RESIDENTIAL CUSTOMER (in cents)
11.88
11.61
9.52
2011
10.17
2012
12.56
12.18
11.85
10.17
2013
10.07
2014
EPB
10.71
Nationwide*
2015
*Source: U.S. Energy Information Administration Table 5.3 - Average Retail Prices of Electricity to Ultimate Consumers
12
13
EPB — FIBER OPTICS SYSTEM
FINANCIAL HIGHLIGHTS 2015
EPB Fiber Optics System increased its revenue from $99.9 million in FY 2014 to $118.2 million in FY 2015, an
increase of $18.3 million or 15.5 percent. This increase in revenues is due mainly to the growth in the number
of customers for Fiber Optics residential services from 58,000 to 67,000 during FY 2015. The net plant grew
from $75.0 million in FY 2014 to $77.3 million in FY 2015, an increase of 3.0 percent. The increase in plant
is due mainly to the additional plant necessary for the Fiber Optics System to provide Internet, video, and
telephone services to additional residential and commercial customers added during FY 2015. Fiber Optics
expenses and transfers to the City of Chattanooga totaled $101.3 million.
FIBER OPTICS REVENUES
Other Revenue
$10,194,000
9%
Residential Services Revenue
$80,904,000
68%
Commercial Basic Local
Services Revenue
$26,292,000
22%
Commercial Long Distance
Message Revenue
$835,000
1%
14
FIBER OPTICS NET PLANT
Construction Work in
Progress
$1,305,000
2%
Central Office Equipment
$14,419,000
19%
Furniture, Fixtures
& Equipment
$2,043,000
2%
Information Origination/
Termination
$3,832,000
5%
Cable & Wire Facilities &
Customer Premises
$55,657,000
72%
FIBER OPTICS EXPENSES AND TRANSFERS TO THE CITY OF CHATTANOOGA
Tax Equivalents
$1,594,000
2%
Interest Expense
$981,000
1%
$15,521,000
15%
General and
Administrative
$2,108,000
2%
Operation Expenses
$38,114,000
38%
Cost of Services
$42,937,000
42%
R E P O R T O F I N D E P E N D E N T C E R T I F I E D P U B L I C A C C O U N TA N T S |
Independent Auditor’s Report
To the Board of Directors, Electric Power Board of Chattanooga
Chattanooga, Tennessee
Report on the Financial Statements
We have audited the accompanying financial statements of the Electric Power Board (“EPB”, an enterprise
fund of the City of Chattanooga) which comprise the balance sheets for the years ended June 30, 2015 and
2014, and the related statements of revenues, expenses, and changes in net position and cash flows for the
years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
EPB’s management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
financial position of EPB, as of June 30, 2015 and 2014, and the respective changes in financial position and,
where applicable, cash flows thereof for the years then ended in accordance with accounting principles
generallly accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management
Discussion and Analysis on pages 17 through 26 and the Required Supplementary Information on pages 55
through 58 be presented to supplement the basic financial statements. Such information, although not a
part of the basic financial statements, is required by the Governmental Accounting Standards Board who
15
R E P O R T O F I N D E P E N D E N T C E R T I F I E D P U B L I C A C C O U N TA N T S |
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to
the required supplementary information in accordance with auditing standards generally accepted in the
United States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management’s responses to our inquiries,
the basic financial statements, and other knowledge we obtained during our audit of the basic financial
statements. We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively
comprise EPB’s basic financial statements. The supplemental schedules for Electric, Telecom, Video and
Internet, and Fiber Optics Systems, the Schedule of Federal Expenditures, and the EPB Schedule of Bonds
Payable are presented for purposes of additional analysis and are not a required part of the basic financial
statements.
These supplemental schedules are the responsibility of management and were derived from and relate
directly to the underlying accounting and other records used to prepare the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or
to the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the supplemental schedules
for Electric, Telecom, Video and Internet, and Fiber Optics Systems, the Schedule of Federal Expenditures,
and the EPB Schedule of Bonds Payable are fairly stated, in all material respects, in relation to the basic
financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated September 11, 2015
on our consideration of EPB’s internal control over financial reporting and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of
that report is to describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing, and not to provide an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering EPB’s internal control over financial reporting and compliance.
September 11, 2015
16
|
EPB
MANAGEMENT’S
DISCUSSION
& ANALYSIS
17
E P B M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S |
EPB MANAGEMENT’S
DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis is in accordance with Governmental Accounting Standards
Board Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State
and Local Governments. Our discussion and analysis of EPB’s financial performance provides an overview
of financial activities for the FY ended June 30, 2015. Please read it in conjunction with EPB’s financial
statements, which follows this section.
FINANCIAL HIGHLIGHTS
• EPB’s total net position was $302.2 million, an increase of 6.0%
• During the year, electric sales were $543.8 million, a decrease of 0.4%; fiber optics sales were $106.8
million, an increase of 18.7%
• Total operating expenses were $633.4 million, an increase of 2.6%
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report includes Management’s Discussion and Analysis Report, the independent auditor’s report,
the basic financial statements of EPB, and supplemental information about EPB. The financial statements
also include notes that explain in more detail some of the information in the financial statements.
REQUIRED FINANCIAL STATEMENTS
The financial statements of EPB report information using accounting methods similar to those used by
private sector companies. These statements offer short and long-term financial information about its
activities. The Statement of Net Position includes all of EPB’s assets, liabilities, and deferred outflows and
inflows and provides information about the nature and amounts of investments in resources (assets and
deferred outflows) and the obligations to EPB creditors (liabilities and deferred inflows). It also provides the
basis for evaluation of the capital structure of EPB and for assessing the liquidity and financial flexibility of EPB.
The Statement of Revenues, Expenses, and Changes in Net Position account for all of the current year’s
revenues and expenses. This statement measures the success of EPB’s operations over the past year
and can be used to determine whether EPB has successfully recovered all its costs through rates and
other charges.
18
The final required financial statement is the Statement of Cash Flows. This statement reports cash receipts,
cash payments, and net changes in cash resulting from operating, investing, and financing activities and
provides details as to the sources of cash, the uses of cash, and the change in the cash balance during the
reporting period.
FINANCIAL ANALYSIS OF EPB
The Statements of Net Position and the Statements of Revenues, Expenses and Changes in Net Position
report information about EPB’s activities in a way that will highlight the change in financial condition from
year to year. These two statements report the various components of the changes in net position of EPB.
The difference between assets and liabilities is one way to measure financial health or financial position.
Over time, increases or decreases in EPB’s net position are an indicator of whether its financial health
is improving. However, other non-financial factors must also be considered such as weather, economic
conditions, population growth, and new or changed governmental legislation.
NET POSITION
Our analysis begins with a summary of EPB’s Statements of Net Position in Table 1.
TABLE 1: CONDENSED STATEMENTS OF NET POSITION (in thousands of dollars)
FY
2015
Assets and Deferred Outflows, Excluding Utility Plant
$
Utility Plant, net
Total Assets and Deferred Outflows
Bonds Outstanding
Term Debt
Other Debt
Other Liabilities and Deferred Inflows
Total Liabilities and Deferred Inflows
FY
2014
176,987
$
195,889
Dollar
Change
$
Total
Percent
Change
(18,902)
-9.6%
613,093
593,462
19,631
3.3%
790,080
789,351
729
0.1%
270,393
277,797
(7,404)
-2.7%
-
4,777
(4,777)
-100.0%
36,725
46,107
(9,382)
-20.3%
180,806
175,647
5,159
2.9%
487,924
504,328
(16,404)
-3.3%
342,700
315,665
27,035
8.6%
(40,544)
(30,642)
(9,902)
-32.3%
17,133
6.0%
Invested in Utility Plant,
Net of Related Debt
Unrestricted Net Position
Total Net Position
$
302,156
$
285,023
$
The table above shows net position increased $17.1 million to $302.1 million in FY 2015, up from $285.0
million in FY 2014. The largest changes in net position were due to a reduction in Electric bond liabilities of
$7.4 million as well as a reduction of Fiber Optics Debt of $14.2 million. Other changes represented a net
decrease in position of $4.5 million.
19
20
TABLE 2 : CONDENSED STATEMENTS OF REVENUES, EXPENSES,
AND CHANGES IN NET POSITIONS (in thousands of dollars)
FY 2015
FY 2014
Dollar
Change
Total
Percent
Change
(2,009)
-0.4%
16,861
18.7%
Operating Revenues:
Electric Sales
$
Fiber Optics Sales
543,843
$
106,849
Other Operating Revenues
545,852
$
89,988
20,349
18,771
1,578
8.4%
671,041
654,611
16,430
2.5%
500,962
501,991
(1,029)
-0.2%
Fiber Optics
69,177
54,915
14,262
26.0%
Tax Equivalents
12,540
11,855
685
5.8%
50,766
48,735
2,031
4.2%
633,445
617,496
15,949
2.6%
(14,292)
(15,050)
758
-5.0%
Income before Transfers and Contributions
23,304
22,065
1,239
5.6%
Tax Equivalents Transferred to City of Chattanooga
(6,909)
(6,486)
(423)
6.5%
738
1,741
(1,003)
-57.6%
17,133
17,320
(187)
-1.1%
Total
Operating Expenses:
Electric
Total
Other Deductions
Contributions
Change in Net Position
Beginning Net Position
Ending Net Position
285,023
$
302,156
267,703
$
285,023
$
17,320
6.5%
17,133
6.0%
While the Statements of Net Position show the change in net position, the Statements of Revenues, Expenses,
and Changes in Net Position provide answers as to the nature and source of these changes. As shown in Table
2 above, the income before transfers and contributions of $23.3 million combined with the contributions in aid
of construction of $0.7 million and tax equivalents of $6.9 million accrued to the City of Chattanooga resulted in
an increase in net position of $17.1 million for FY 2015.
A closer examination of the sources of changes in net position reveals electric sales decreased $2.0 million.
Additionally, electric operating expenses, excluding depreciation and tax equivalents, decreased by $1.0
million in FY 2015 to $501.0 million from $502.0 million in FY 2014.
Fiber Optics operating sales increased by $16.8 million to $106.8 million in FY 2015 from $90.0 million in
FY 2014 due to the continued success of the commercial and residential service offerings (Fi TV, Fi Phone,
and Fi-Speed Internet). Operating expenses, excluding depreciation and tax equivalents, associated with
acquiring and serving customers increased $14.3 million, a 26.0% increase in FY 2015. This was due
mainly to increased expense allocations from the electric system for shared resources and access to
the fiber network of $6.6 million, as well as an increase of $8.4 million in cost of goods sold related to
the increase of new customers during the year.
Depreciation expense increased to $50.8 million in FY 2015 from $48.7 million in FY 2014, an increase of
4.2%. This increase is the result of both Electric and Fiber Optic Systems utility plant growth.
Expenses for tax equivalents and transfers to municipal governments, including transfers to the City
of Chattanooga, increased by $1.1 million to $19.4 million in FY 2015 from $18.3 million in FY 2014, an
increase of 6.0%. EPB’s Tennessee tax equivalents expense is based on a prescribed formula that consists
of two parts. Part I is calculated using utility plant value within a taxing district, the taxing district’s property
tax rate, the assessment ratio, and the equalization ratio. Part II is based on the average of the last three
years’ Tennessee operating revenues less cost of goods sold and a prescribed rate which is currently 4%.
21
BUDGETARY HIGHLIGHTS
EPB’s Board of Directors approves an Operating and Capital Budget each fiscal year. The budget remains in
effect the entire year and is not revised. A FY 2015 budget comparison and analysis is presented in Table 3.
TABLE 3: ACTUAL VS. BUDGET (in thousands of dollars)
Actual
FY 2015
Budget
FY 2015
Dollar
Change
Total %
Change
(8,810)
-1.6%
Operating Revenues:
Electric Sales
$
Other Electric Revenue
543,843
$
552,653
$
9,296
9,072
224
2.5%
Subtotal
553,139
561,725
(8,586)
-1.5%
Fiber Optics Sales
106,849
101,951
4,898
4.8%
11,053
9,795
1,258
12.8%
Subtotal
117,902
111,746
6,156
5.5%
Total
671,041
673,471
(2,430)
-0.4%
500,962
507,605
(6,643)
-1.3%
Fiber Optics
69,177
65,680
3,497
5.3%
50,766
51,620
(854)
-1.7%
Tax Equivalents
12,540
12,371
169
1.4%
Total
633,445
637,276
(3,831)
-0.6%
Other Deductions
(14,292)
(12,800)
(1,492)
11.7%
Income before Transfers and Contributions
23,304
23,395
(91)
-0.4%
Tax Equivalents Transferred to the
City of Chattanooga
(6,909)
(6,758)
(151)
2.2%
738
420
318
75.7%
17,133
17,057
76
0.4%
Electric
54,615
54,708
(93)
-0.2%
Fiber Optics
17,854
21,344
(3,490)
-16.4%
(3,583)
-4.7%
Other Fiber Optics Revenue
Operating Expenses:
Electric
Contributions
Change in Net Position
Capital Expenditures, net of contributions
Total Capital Expenditures
$
72,469
$
76,052
$
22
The Electric System’s sales revenues were $8.8 million less than budget due mainly to weather fluctuations
throughout FY 2015. Electric operating expenses were lower than budget by $6.6 million due mainly to
transfers and overheads, as well as budgeted storm expenses not fully utilized through the year.
The Fiber Optics System’s operating revenues were over budget by $6.2 million, an increase of 5.5% due
mainly to more customers being added in 2015 than budgeted. Fiber Optics System’s operating expenses
were higher than budget by $3.5 million, an increase of 5.3% due to greater than budgeted sales.
23
UTILITY PLANT
At the end of FY 2015, EPB had $613.1 million in net utility plant as shown in Table 4. This represents a
broad range of infrastructure for the purpose of providing services to our customers. Examples include
transformers, meters, conductors, conduit, poles and fixtures, control equipment, switching equipment, fiber
optics central office switches, and vehicles.
TABLE 4: UTILITY PLANT (in thousands of dollars)
FY 2015
Total
Percent
Change
Dollar
Change
FY 2014
ELECTRIC
Intangible plant
$
Transmission
Distribution
Land & land rights
125
$
125
$
-
0.0%
58,777
57,544
1,233
2.1%
607,781
582,594
25,187
4.3%
6,476
6,098
378
6.2%
Buildings & improvements
72,446
71,228
1,218
1.7%
Furniture, fixtures & equipment
69,336
63,848
5,488
8.6%
Construction work in progress
9,997
7,704
2,293
29.8%
824,938
789,141
35,797
4.5%
(289,101)
(270,648)
(18,453)
6.8%
535,837
518,493
17,344
3.3%
32,974
35,075
(2,101)
-6.0%
Information origination/termination
7,525
5,933
1,592
26.8%
Cable & wire facilities
7,361
7,921
(560)
-7.1%
6,343
5,898
445
7.5%
Customer premises wiring
48,733
44,912
3,821
8.5%
Customer premises equipment
17,175
8,682
8,493
97.8%
Construction work in progress
1,305
1,880
(575)
-30.6%
Total
121,416
110,301
11,115
10.1%
Less: Accumulated depreciation
(44,160)
(35,332)
(8,828)
25.0%
2,287
3.1%
19,631
3.3%
Total
Less: Accumulated depreciation
Electric Total
FIBER OPTICS
Central office equipment
Fiber Optics Total
Net Utility Plant
77,256
$
613,093
74,969
$
593,462
$
24
DEBT ADMINISTRATION
As of year end, EPB’s Electric System had $270.4 million in bond debt outstanding compared to $277.8
million last year. These bonds were rated AA+ by Standard & Poor’s and AA by Fitch at fiscal year end.
Subsequent to fiscal year end, EPB refinanced the majority of these bonds to take advantage of lower
market interest rates. This refinance resulted in estimated present value interest savings of approximately
$19.8 million. As part of the refinancing project, Fitch upgraded the EPB bond rating to AA+.
One area that demonstrates EPB’s financial strength and future borrowing capability is seen in its debt
coverage ratio. The City of Chattanooga has a requirement that if this ratio should ever decrease below
1.5x, EPB would be required to establish and fund a reserve fund. Debt coverage ratio as it relates to the
Electric System revenue bonds is shown in Table 5. This ratio is currently 3.4x. The slight decrease in the debt
coverage ratio is due to the increase in debt service paid during 2015.
TABLE 5: ELECTRIC SYSTEM DEBT COVERAGE ANALYSIS (in thousands of dollars)
FY 2015
FY 2014
Revenues
Electric Revenue
$
567,121
$
566,519
Interest Income
197
263
Other Income
210
207
567,528
566,989
443,970
436,507
56,171
64,499
500,141
501,006
67,387
65,983
12,832
13,084
Total Revenue
Expenses
Purchased Power
Operating Expenses
Total Operation Expenses
(excluding depreciation and tax equivalent payments)
Funds Available for Debt Service
Debt Service
Interest Paid on Long-Term Debt
Principal Payments
Total Debt Service
Debt Coverage Ratio
7,040
$
19,872
3.4
6,000
$
19,084
3.5
25
In March of FY 2013, the Telecom System borrowed $11.5 million on a three-year term loan and obtained
a $2.5 million line of credit from a bank. As of June 30, 2015 the term loan had been fully repaid ahead of
schedule, and the line of credit carried no balance. In August 2012, the Video and Internet System obtained
a revolving line of credit for $60.0 million, which was used to repay all the funds borrowed from the Electric
System and retire an outstanding bank loan. The line of credit was replaced by a new $60.0 million line of
credit in FY 2015 which matures in December 2017. The balance of the lines of credit at the end of FY
2015 and 2014 were $36.7 million and $45.9 million, respectively.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES
EPB’s Board of Directors and Management considered many factors when setting FY 2016 budget and
rates. One of those factors is the local economy and EPB’s related impact on local industries. EPB’s budget
is based upon a statistical model using seven years of historical data to estimate growth and average
kilowatt-hour sales per customer within customer class. These estimates are adjusted by any known data,
such as changes anticipated by a large industrial customer.
In FY 2016, EPB Fiber Optics plans to further its financial performance by growing its Fi TV, Fi Phone, and FiSpeed Internet services to residential and business customers. EPB Fiber Optics had approximately 73,000
residential and business customers at the end of FY 2015 and is projected to have over 80,000 by the end of
FY 2016.
The EPB Electric System’s budget for FY 2016 includes the allocation of capital for fiber installations to
support the Smart Grid, as well as IT system upgrades and integrations. The budget also includes capital
allocations to account for steadily increasing residential and commercial growth.
Capital investments for the Fiber Optics System will focus on our increasing residential and business
customer bases through significant video upgrades, as well as the purchase of equipment to support the
success of our hosted telephone solution.
CONTACTING EPB’S FINANCIAL MANAGER
This report is designed to provide our customers and creditors with a general overview of EPB’s finances
and to demonstrate EPB’s accountability for the money it receives. If you have questions about this report
or need additional financial information, contact EPB - Finance Division, P. O. Box 182255, Chattanooga, TN
37422-7255.
26
|
FINANCIAL
STATEMENTS
27
F I N A N C I A L S TAT E M E N T S |
EPB STATEMENTS OF NET POSITION
AS OF JUNE 30, 2015 AND 2014
2015
ASSETS AND DEFERRED OUTFLOWS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowance for
doubtful accounts of $1,300,000 and $1,180,000
in 2015 and 2014, respectively
Unbilled electric sales
Grants receivable
Materials and supplies, at average cost
Prepayments and other current assets
$
NON-CURRENT ASSETS
Utility plant Utility plant
Less - accumulated provision for depreciation
Net utility plant
Other non-current assets
DEFERRED OUTFLOWS OF RESOURCES
Deferred pension outflows
TOTAL ASSETS AND DEFERRED OUTFLOWS
LIABILITIES, DEFERRED INFLOWS AND NET POSITION
CURRENT LIABILITIES
Accounts payable Tennessee Valley Authority, for power purchased
Other
Customer deposits
Revenue bonds, current portion
Accrued tax equivalents
Accrued interest payable
Line of credit
Notes payable
Other current liabilities
$
99,457,000
27,550,000
37,096,000
4,819,000
13,066,000
5,765,000
167,214,000
32,396,000
32,194,000
6,694,000
12,809,000
6,129,000
189,679,000
946,354,000
(333,261,000)
613,093,000
2,676,000
615,769,000
899,442,000
(305,980,000)
593,462,000
2,580,000
596,042,000
7,097,000
3,630,000
$
790,080,000
$
789,351,000
$
77,469,000
15,416,000
3,239,000
8,075,000
19,318,000
4,345,000
12,307,000
140,169,000
$
77,299,000
16,144,000
3,135,000
7,040,000
18,273,000
4,463,000
232,000
3,833,000
10,272,000
140,691,000
NON-CURRENT LIABILITIES
Revenue bonds, net
Net pension liability
Line of credit
Accrued post-employment benefit obligation
Customer deposits
Notes payable
Other non-current liabilities
DEFERRED INFLOWS OF RESOURCES
Deferred pension inflows
NET POSITION
Net investment in capital assets
Unrestricted
TOTAL LIABILITIES, DEFERRED INFLOWS AND NET POSITION
78,918,000
2014
$
262,318,000
6,134,000
36,725,000
8,894,000
22,176,000
9,082,000
345,329,000
270,757,000
5,773,000
45,875,000
9,365,000
21,647,000
944,000
9,276,000
363,637,000
2,426,000
-
342,700,000
(40,544,000)
302,156,000
315,665,000
(30,642,000)
285,023,000
790,080,000
The accompanying Notes to Financial Statements are an integral part of these statements.
$
789,351,000
28
EPB STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION,
FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015
OPERATING REVENUES
Electric Sales
Residential
Small commercial and power
Large commercial and power
Outdoor lighting systems
Total billed electric sales
$
Change in unbilled electric sales
Less uncollectible electric sales
Total electric sales
231,864,000
45,460,000
256,158,000
6,069,000
539,551,000
2014
$
237,376,000
45,631,000
259,676,000
6,229,000
548,912,000
4,902,000
(610,000)
543,843,000
(2,340,000)
(720,000)
545,852,000
Fiber optics sales
Billed fiber optics revenues
Less uncollectible fiber optics revenues
Total fiber optics sales
Other operating revenues
107,708,000
(859,000)
106,849,000
20,349,000
90,850,000
(862,000)
89,988,000
18,771,000
Total operating revenues
671,041,000
654,611,000
OPERATING EXPENSES
Operation
Power purchased from Tennessee Valley Authority
Other operation expenses
Maintenance
Fiber optic operating expenses
Provision for depreciation
City, county, and state tax equivalents
Total operating expenses
Net operating income
443,970,000
34,969,000
22,023,000
69,177,000
50,766,000
12,540,000
633,445,000
37,596,000
436,507,000
38,433,000
27,051,000
54,915,000
48,735,000
11,855,000
617,496,000
37,115,000
OTHER REVENUES (DEDUCTIONS)
Interest revenue on invested funds
Interest expense
Other, net
Plant cost recovered through contributions in aid of construction
197,000
(13,961,000)
210,000
(738,000)
263,000
(13,779,000)
207,000
(1,741,000)
(14,292,000)
(15,050,000)
INCOME BEFORE TRANSFERS AND CONTRIBUTIONS
23,304,000
22,065,000
TAX EQUIVALENTS TRANSFERRED TO THE CITY OF CHATTANOOGA
CONTRIBUTIONS IN AID OF CONSTRUCTION
CHANGE IN NET POSITION
(6,909,000)
738,000
17,133,000
(6,486,000)
1,741,000
17,320,000
285,023,000
-
270,869,000
(3,166,000)
Total other deductions
NET POSITION, BEGINNING OF YEAR
CHANGE IN ACCOUNTING PRINCIPLE
NET POSITION, END OF YEAR
$
302,156,000
$
285,023,000
29
EPB STATEMENTS OF CASH FLOWS
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers for goods and services
Payments to employees for services
Payments in lieu of taxes
Net cash provided by operating activities
$
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Additions to utility plant
Removal cost
Salvage
Contributions in aid of construction
Interest paid on debt
Change in line of credit, net
Repayments of long-term debt
Bond principal payment
Bond interest payment
Net cash used in capital and related financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
RECONCILIATION OF OPERATING INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Adjustments to reconcile net operating income to net cash provided by operating activities:
Depreciation and amortization
Miscellaneous non-operating expenses, net
Tax equivalents transferred to the City of Chattanooga
Changes in assets and liabilities:
Accounts receivable, net
Grants receivable
Materials and supplies
Other charges
Accounts payable, net
Customer deposits
Other credits
NET CASH PROVIDED BY OPERATING ACTIVITIES
686,859,000
(544,365,000)
(38,472,000)
(18,402,000)
85,620,000
2014
$
664,661,000
(526,789,000)
(34,507,000)
(18,025,000)
85,340,000
(71,535,000)
(910,000)
464,000
738,000
(1,082,000)
(9,382,000)
(4,777,000)
(7,040,000)
(12,832,000)
(106,356,000)
(79,942,000)
(258,000)
563,000
1,741,000
(1,877,000)
(5,721,000)
(6,084,000)
(6,000,000)
(13,084,000)
(110,662,000)
197,000
291,000
(20,539,000)
99,457,000
(25,031,000)
124,488,000
$
78,918,000
$
99,457,000
$
37,596,000
$
37,115,000
$
51,910,000
210,000
(6,909,000)
50,829,000
207,000
(6,486,000)
4,846,000
(4,902,000)
1,875,000
(257,000)
396,000
(96,000)
(1,384,000)
633,000
1,045,000
2,035,000
(194,000)
(713,000)
(471,000)
(6,519,000)
2,341,000
1,045,000
(331,000)
798,000
66,000
6,525,000
(546,000)
315,000
(547,000)
218,000
310,000
85,620,000
$
85,340,000
30
|
NOTES TO
FINANCIAL
STATEMENTS
31
N O T E S T O F I N A N C I A L S TAT E M E N T S |
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The Electric Power Board of Chattanooga is a municipal utility and an enterprise fund of the City of
Chattanooga, Tennessee. In 1999, the Electric Power Board began doing business as EPB. EPB began
electric operations (the “Electric System”) in 1939 and provides electricity to over 175,000 customers in
the City of Chattanooga and surrounding counties, including Northwest Georgia. The Tennessee Valley
Authority is EPB’s sole provider of power and acts in a regulatory capacity in setting electric rates. In
1999, EPB created the Telecom System to provide telecommunications services to businesses within the
EPB electric service territory. In fiscal year (FY) 2003, EPB began providing Internet services to business
customers. On September 25, 2007, the City Council of the City of Chattanooga approved and authorized
EPB to provide voice, Internet, and video services to residential customers. EPB provided these services
to its first residential customer in September 2009. At the end of FY 2015, EPB had over 67,000 residential
customers and 5,600 business customers in the Telecom and Video & Internet Systems. Supplementary
data for the Electric System, Telecom System, Video & Internet System and Fiber Optics System
(consolidated financials of the Telecom and Video & Internet Systems) is shown in Supplemental Schedules.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements of EPB include the accounts of the Electric System and the
Fiber Optics System (collectively EPB). All significant inter-system transactions and balances have been
eliminated in the financial statements of EPB.
Where applicable, the Electric System’s accounting records generally follow the Federal Energy Regulatory
Commission’s Uniform System of Accounts Prescribed for Public Utilities, and the Fiber Optics System’s
accounting records generally follow the Federal Communications Commission’s Uniform System of
Accounts for Telecommunications Companies.
32
In FY 2014, EPB implemented GASB Statement No. 65, “Items Previously Reported as Assets and Liabilities”.
This statement requires governments to adopt provisions of Concepts Statement No. 4 for all other
items reported as assets and liabilities, which were not addressed as part of GASB Statement No. 63.
Statement No. 65 establishes accounting and financial reporting standards that reclassify certain items
currently being reported as assets and liabilities as deferred outflows of resources and deferred inflows
of resources. Additionally, Statement No. 65 limits the use of the term “deferred” to only items reported as
deferred outflows of resources or deferred inflows of resources. The result of implementation was a direct
adjustment to the net position on EPB’s FY 2013 Statement of Net Position of approximately $2.3 million
($2.1 million for the Electric System and $0.2 million for the Fiber Optics System) to eliminate unamortized
debt issuance cost.
In FY 2015, EPB implemented GASB Statement No. 68, “Accounting and Financial Reporting for Pensions”.
The objective of this statement is to improve accounting and financial reporting by state and local
governments for pensions. This change in accounting principle resulted in the following restatements to FY
2014 reported balances (in thousands):
Electric System
Net position, as previously reported
$
Deferred outflows
273,525
Fiber System
$
14,664
Total
$
288,189
3,176
454
3,630
Prepaid pension asset
(1,023)
-
(1,023)
(5,051)
(722)
(5,773)
Net position restated
$
270,627
$
14,396
$
285,023
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, and deferred outflows and inflows and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks, and short-term, highly-liquid
investments with an original maturity date of three months or less.
33
FINANCIAL INSTRUMENTS
Financial instruments of EPB may include certificates of deposit, money market accounts, short-term
investments in federal agency bonds and notes, commercial paper, investment in the State of Tennessee
Local Government Investment Pool, and accounts receivable. Short-term investments in federal agency
bonds and notes with a maturity of one year or less are carried at amortized cost. All other financial
instruments are carried at fair value as determined by quoted market prices at June 30, 2015 and 2014.
MATERIALS AND SUPPLIES
Materials and supplies inventory is valued at the lower of cost or market using the average cost basis, which
approximates actual cost.
UTILITY PLANT
Utility plant is stated at original cost. Such costs include applicable general and administrative costs and
payroll-related costs such as pensions, taxes, and other benefits.
EPB provides depreciation at rates which are designed to amortize the cost of depreciable utility plant over
its estimated useful life. The composite straight-line rate, expressed as a percentage of average utility plant,
was 5.69% in 2015 and 5.89% in 2014.
When property subject to depreciation is retired or otherwise disposed of in the normal course of business,
its original cost, together with its cost of removal less salvage, is charged to the accumulated provision
for depreciation. EPB charges maintenance and repairs, including the cost of renewals of minor items of
property, to maintenance expense accounts. Placements of property (exclusive of minor items of property)
are capitalized to utility plant accounts.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the approximate net composite interest cost of borrowed funds used for construction. For
FY 2015 and 2014, AFUDC increased the plant balance and decreased interest expense by $0.3 million and
$0.7 million, respectively.
REVENUES AND EXPENSES
Revenues are recognized on the accrual basis at the time utility services are provided. Operating revenues
include utility sales net of bad debt expense and miscellaneous revenue related to utility operations. This
miscellaneous revenue includes late payment fees, rental income, and ancillary services. Operating
expenses include those expenses that result from the ongoing operations of the utility systems.
Non-operating revenues consist primarily of investment income. Non-operating expenses consist of interest
expense on indebtedness and various miscellaneous expenses.
34
ACCOUNTS RECEIVABLE
EPB periodically reviews accounts receivable for amounts it considers as uncollectible and provides an
allowance for doubtful accounts. Current earnings are charged with a provision for doubtful accounts
based on a percent of gross revenue determined from historical net bad debt experience. This evaluation is
inherently subjective as it requires estimates that are susceptible to revision as more information becomes
available. Accounts considered uncollectible throughout the year are charged against the allowance.
PENSIONS
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of
resources related to pensions, pension expense, information about the fiduciary net position of the Electric
Power Board of Chattanooga Retirement Plan (the “Plan”) and additions to/deductions from the Plan’s
fiduciary net position, have been determined on the same basis as that reported by the Plan. For
this purpose, benefit payments are recognized when due and payable in accordance with the benefit
terms. Investments are reported at fair value.
ADVERTISING COST
Costs related to advertising for the Electric System and Fiber Optics System are expensed in the FY in which
related advertising takes place. Advertising expense for FY 2015 and 2014 was approximately $3.0 million
and $2.6 million, respectively.
SUBSEQUENT EVENTS
Management has evaluated events and transactions subsequent to the balance sheet date through the
date of the independent auditor’s report (the date the financial statements were available to be issued) for
potential recognition or disclosure in the financial statements.
35
36
3. DEPOSITS AND INVESTMENTS
EPB’s investment policy allows for investments in certificates of deposit, repurchase agreements, money
market accounts with local depository institutions, the State of Tennessee Local Government Investment
Pool (LGIP), U.S. Treasury obligations, U.S. Government Agency obligations, municipal bonds, and
commercial paper. The LGIP, money market, and certificate of deposit accounts are classified as cash and
cash equivalents for reporting purposes.
AT JUNE 30, 2015, EPB HAD THE FOLLOWING INVESTMENTS AND MATURITIES (in thousands of dollars):
Investment
Local Government Investment Pool (LGIP)
Fair Value or
Carrying Amount
$
213
Maturities
Less Than 1 Year
$
213
Maturities
Maturities
1 Year Up To Less
Than
2 Years
2 Years Up To Less
Than
3 Years
—
$
$
—
Money Market Accounts
60,959
60,959
—
—
Certificates of Deposit
10,299
10,299
—
—
Total
$
71,471
$
71,471
—
$
$
—
AT JUNE 30, 2014, EPB HAD THE FOLLOWING INVESTMENTS AND MATURITIES (in thousands of dollars):
Investment
Local Government Investment Pool (LGIP)
Fair Value or
Carrying Amount
$
213
Maturities
Less Than 1 Year
$
213
Maturities
Maturities
1 Year Up To Less
Than
2 Years
2 Years Up To Less
Than
3 Years
$
—
$
—
76,575
76,575
—
—
Certificates of Deposit
15,074
15,074
—
—
Total
$
91,862
$
91,862
$
—
$
—
INTEREST RATE RISK
EPB’s investment policy does not limit investment maturities as a means of managing its exposure to fair
value losses arising from increasing interest rates. Instead, the portfolio is structured in a manner that
ensures sufficient cash is available to meet anticipated liquidity needs. Selection of investment maturities
must be consistent with the cash requirements of EPB in order to avoid the forced sale of securities prior to
maturity. Accordingly, EPB has an investment policy that limits the maturities on individual investments to
no more than four years without approval of the State Director of Local Finance or as otherwise provided by
State Statute. Investments at June 30, 2015 and 2014 met investment policy restrictions.
CREDIT RISK
EPB’s general investment policy is to apply the prudent-person rule: investments are made as a prudent
person would be expected to act, with discretion and intelligence, to seek reasonable income, preserve
capital, and avoid speculative investments. EPB’s investment policy limits investments in U.S. Government
Agency obligations to the highest ratings by two nationally recognized statistical rating organizations
(NRSRO).
Also, EPB’s investment policy restricts investments in commercial paper to those which are rated at least
A1 or equivalent by at least two nationally recognized rating services.
CUSTODIAL CREDIT RISK
At June 30, 2015 and 2014, EPB’s deposits, money market accounts with local depository institutions,
and investments in certificates of deposits were entirely covered by either Federal Depository Insurance
Corporation insurance or insured by the State of Tennessee Collateral Pool for Public Deposits. Also, at
June 30, 2015 and 2014, portions of EPB’s investments were held in the State of Tennessee LGIP. The
legislation providing for the establishment of the LGIP (Tennessee Code Annotated ¶9-4-701 et seq.)
authorizes investment in the LGIP for local governments and other political subdivisions. The LGIP is
sponsored by the State of Tennessee Treasury Department and is a part of the State Pooled Investment
Fund. All of EPB’s deposits and investments (excluding the LGIP) are insured or registered in EPB’s name.
37
CONCENTRATION OF CREDIT RISK
EPB’s investment policy requires its overall portfolio to be diversified to eliminate the risk of loss from an
over concentration of assets in a specific class of security, a specific maturity, and/or a specific issuer.
EPB’s investment policy limits its investments to no more than five percent (5%) in any single issuer with the
following exceptions:
U.S. Treasury Obligations
100%
maximum
Federal Agency
100% maximum
Insured/Collateralized Certificates of Deposit and Accounts
100% maximum
Tennessee LGIP
100% maximum
Commercial Paper
10% maximum
Repurchase Agreements Counterparty 10% maximum
INVESTMENTS BY ISSUER AND PERCENTAGE OF TOTAL INVESTMENTS
AT JUNE 30, 2015 AND 2014 WERE AS FOLLOWS:
Issuer
Investment Type
June 30, 2015
June 30, 2014
State of Tennessee
Local Government Investment Pool
0.30%
0.23%
BB&T Bank
0.75%
1.25%
CapitalMark Bank
36.81%
16.59%
Capstar Bank
Money Market Accounts & CD’s
21.34%
21.92%
Cornerstone Bank
Money Market Accounts & CD’s
5.58%
3.92%
FirstBank
0.34%
0.26%
First Tennessee Bank
33.12%
52.01%
First Volunteer Bank
0.01%
0.01%
FSG Bank
0.36%
0.28%
Northwest Georgia Bank
0.35%
0.27%
Regions Bank
0.36%
0.28%
Southern Community Bank
0.35%
-
SunTrust Bank
0.33%
2.98%
38
4. UTILITY PLANT
ELECTRIC UTILITY PLANT ASSETS ACTIVITY FOR THE YEAR ENDED
JUNE 30, 2015 WAS AS FOLLOWS (in thousands of dollars):
Electric Asset Cost
June 30, 2014
Retirements &
Other
Additions
June 30, 2015
NON-DEPRECIABLE ASSETS:
Land & Land Rights
$
6,098
$
378
$
—
$
6,476
DEPRECIABLE ASSETS:
Intangible Plant
125
—
—
125
57,544
2,110
(877)
58,777
582,594
36,991
(11,804)
607,781
71,228
1,272
(54)
72,446
Furniture, Fixtures & Equipment
63,848
9,893
(4,405)
69,336
7,704
2,293
—
9,997
Transmission
Distribution
Electric Total Asset Cost
$
Electric Accumulated Depreciation
June 30, 2014
Intangible Plant
$
Transmission
789,141
$
52,937
$
$
$
Retirements &
Other
Additions
26
(17,140)
13
$
824,938
June 30, 2015
—
$
39
27,605
1,879
(961)
28,523
195,648
23,408
(12,386)
206,670
18,261
2,423
(194)
20,490
29,108
8,666
(4,395)
33,379
Distribution
Electric Total Accumulated Decepreciation
$
270,648
$
36,389
$
(17,936)
$
289,101
Electric Total Net Utility Plant
$
518,493
$
16,548
$
796
$
535,837
FIBER OPTICS UTILITY PLANT ASSETS ACTIVITY FOR THE YEAR ENDED
JUNE 30, 2015 WAS AS FOLLOWS (in thousands of dollars):
Fiber Optics Asset Cost
June 30, 2014
$
35,075
Retirements &
Other
Additions
$
1,624
$
(3,725)
June 30, 2015
$
32,974
Information Orgination/Termination
5,933
2,165
(573)
7,525
Cable & Wire Facilities
7,921
61
(621)
7,361
5,898
502
(57)
6,343
44,912
3,821
—
48,733
Customer Premise Equipment
8,682
10,047
(1,554)
17,175
1,880
(575)
—
1,305
Customer Premise Wiring
Fiber Optics Total Asset Cost
$
110,301
$
17,645
$
(6,530)
$
121,416
39
Fiber Optics Accumulated Depreciation
June 30, 2014
$
19,123
Additions
$
3,157
Retirements &
Other
$
(3,725)
June 30, 2015
$
18,555
Information Orgination/Termination
2,268
1,998
(573)
3,693
Cable & Wire Facilities
3,237
1,266
(628)
3,875
3,551
806
(57)
4,300
Customer Premise Wiring
3,407
4,677
(156)
7,928
Customer Premise Equipment
3,746
3,617
(1,554)
5,809
Fiber Optics Total Accumulated Depreciation
$
35,332
$
15,521
$
(6,693)
$
44,160
Fiber Optics Total Net Utility Plant
$
74,969
$
2,124
$
163
$
77,256
Total Net Utility Plant
$
593,462
$
18,672
$
959
$
613,093
THE ESTIMATED USEFUL LIVES OF CAPITAL ASSETS ARE AS FOLLOWS:
Intangible plant
10 years
Transmission
10-40 years
Distribution
10-40 years
Buildings & improvements
20-40 years
Central office equipment
5-30 years
10-14 years
Information origination/termination
5-10 years
Cable & wire facilities
7-30 years
Leasehold improvements
10 years
Customer premise wiring
10 years
Customer premise equipment
3.5 years
Depreciation expense for the Electric System was approximately $36.4 million and $35.8 million for
the fiscal years ended June 30, 2015 and 2014, respectively. Depreciation expense for the Fiber Optics
System was approximately $15.5 million and $15.1 million for the fiscal years ended June 30, 2015 and
2014, respectively.
40
5. DEBT
LONG-TERM DEBT AT JUNE 30, 2015 IS AS FOLLOWS (in thousands of dollars):
Balance at
June 30, 2014
Repayments,
Amortization or
Accretion
$
$
Balance at
June 30, 2015
Additions
Current
Amount Due
ELECTRIC SYSTEM
Electric System Revenue
Bonds, 2006 Series A,
bear interest at rates from
4.125% to 4.50%, maturing
through September 2031,
interest due semi-annually
Bonds, 2006 Series B, bear
interest at rates from 4.00%
to 4.25%, maturing through
September 2025, interest
due semi-annually
34,230
(1,295)
$
—
$
32,935
$
1,345
19,905
(1,745)
—
18,160
1,730
Bonds, 2008 Series A, bear
interest at rates from 3.50%
to 5.00%, maturing
September 2015 through
2033, interest due semiannually
216,830
(4,000)
—
212,830
5,000
Subtotal
270,965
(7,040)
—
263,925
8,075
6,832
(364)
—
6,468
—
277,797
(7,404)
—
270,393
8,075
Secured Term Promissory
Note, bearing interest rate
of 30 day LIBOR plus 1.12%
(1.27% at June 30, 2014),
repayable in thirty-six
monthly installments
4,777
(4,777)
—
—
—
Total Fiber Optic System
Debt
4,777
(4,777)
—
—
—
Unamortized premium/
(discount)
Total Electric System
Debt
FIBER OPTICS SYSTEM
Total Debt
$
282,574
$
(12,181)
$
—
$
270,393
$
8,075
41
EPB issues Revenue Bonds to provide funds primarily for capital improvements to the Electric System and
refundings of other bonds. All bond issues are secured by a pledge and lien on the net revenues of EPB on
parity with the pledge established by all bonds issued. Annual maturities on all Electric System long-term
debt and related interest are as follows for each of the next five fiscal years and in five-year increments
thereafter (in thousands of dollars):
Fiscal Year
2016
Principal
$
8,075
Interest
$
Total
12,502
$
20,577
2017
9,390
12,139
21,529
2018
9,740
11,752
21,492
2019
10,165
11,300
21,465
2020
10,640
10,809
21,449
2021 – 2025
61,305
45,741
107,046
2026 – 2030
77,615
29,001
106,616
2031 – 2034
Total
76,995
$
263,925
7,905
$
141,149
84,900
$
405,074
In August 2006, EPB issued Electric System Revenue Bonds, 2006 Series A, in order to finance the
acquisition, expansion, and improvement of the Electric System and reimburse EPB for prior capital
expenditures. The $40 million par value of the bonds, less underwriter discount and cost of issuance, plus
original issue premium netted proceeds of approximately $39.6 million, of which $20 million was reimbursed
to EPB’s operating fund, and the remainder was deposited to a special construction account that was
drawn to a zero balance over the course of fiscal year 2007.
Concurrent with the 2006 Series A issue, EPB issued $23.4 million of Electric System Refunding Revenue
Bonds, Series 2006 B, to refinance a portion of the 2000 Series Bonds. These proceeds were used to
purchase certain governmental securities and placed within an irrevocable trust with an escrow agent.
The proceeds were subsequently used to service and retire $22.4 million of the series 2000 bonds on
their call date of September 1, 2010.
42
In April 2008, EPB issued Electric System Revenue Bonds, 2008 Series A, in order to finance the construction
of a Smart Grid for the Electric System, including reimbursement for prior expenditures, and various capital
improvements to EPB’s distribution system, including acquisition of new transformers and the construction
of facilities to serve new customers. The $219.8 million par value of the bonds, less underwriter discount
and cost of issuance, plus original issue premium netted proceeds of approximately $226.8 million, which
was deposited to a special construction account. All funds in this construction account have been spent.
The City of Chattanooga has a requirement that if the EPB debt coverage ratio (funds available for servicing
debt divided by debt service) associated with the revenue bonds and operations of the Electric System
should be below 1.5x, EPB will be required to establish and fund a reserve fund. The debt coverage ratio at
June 30, 2015 was 3.4x.
In March 2013, a bank loan was obtained for $11.5 million with principal and interest due in thirty-six
monthly installments for the benefit of the Telecom System, guaranteed by the revenue and assets of the
Telecom System. The loan bore interest equal to the 30-day LIBOR (London Interbank Offered Rate) plus
1.12%. At June 30, 2014, the balance on this loan was $4.8 million. The loan was fully repaid during
FY 2015.
In FY 2015 and 2014, the Telecom System maintained a $2.5 million line of credit. The line of credit is
used for working capital needs. The line of credit is secured by the revenues and assets of the Telecom
System. The outstanding balance bears interest equal to 30-day LIBOR plus 1.15%. This line of credit
shall become due and payable in March 2016. At June 30, 2014, the outstanding balance under the line
of credit was $232,000. There were no amounts outstanding at June 30, 2015.
In August 2012, a revolving line of credit was obtained for $60 million for the benefit of the Video and
Internet System. The line of credit was used for repayment of all funds borrowed from the Electric
System and retirement of the outstanding principal of a $7.5 million bank loan obtained in October 2011.
The outstanding balance at June 30, 2014 was $45.9 million. During December 2014, a new revolving
line of credit was secured for the retirement of the prior credit facility. This line of credit is secured by
the revenue and other income of the Video and Internet System. The loan matures in December 2017
and incurs monthly interest payments equal to 30-day LIBOR plus 0.95%, subject to a total 1.0% floor.
At June 30, 2015, the outstanding balance under this revolving line of credit was $36.7 million.
43
EPB maintained a $25 million bank line of credit with the execution of an Electric System Revenue
Anticipation Note in FY 2015 and 2014. The purpose of the note is for financing the purchase of electric
power. This note is payable from and secured by a pledge of the net revenues of the Electric System,
subject to the prior pledge of such revenues in favor of the outstanding bonds. The current facility
matures June 2016 and bears an interest rate of 30-day LIBOR plus 0.75%. As of June 30, 2015 and
2014, there were no amounts outstanding on the note.
6. OTHER LONG-TERM LIABILITIES
Sick leave liabilities are composed of short-term and long-term portions. Short-term sick leave liability is
included in current liabilities in the other current liabilities category, and long-term sick leave liability is
included in long-term liabilities in the other non-current liabilities category. In 2002, the sick leave
program was terminated, but employees were permitted to retain any accumulated sick leave hours.
During December of each year, employees may elect to convert any unused annual leave hours to sick
leave hours on a one for one basis.
Under certain conditions employees may use sick leave hours. Annually, employees may elect to be paid
at their current rate of pay for up to 48 hours of sick leave at the rate of one hour of pay for two hours of sick
leave and for up to an additional 16 hours of sick leave at the rate of one hour of pay for one hour of sick
leave. The valuation of the hours eligible for this annual payment is considered a short-term liability. This
short-term sick leave liability was $205,000 at June 30, 2015 and 2014, respectively. Also, employees were
eligible to be paid upon retirement at the rate of 38% for accumulated sick leave hours at June 30, 2015
and 2014, at their current rate of pay. Total accumulated sick leave hours reduced by the hours eligible for
annual payment is considered the hours eligible for pay upon retirement.
The valuation of the hours eligible for pay upon retirement is considered a long-term liability. This long-term
sick leave liability was $401,000 and $571,000 at June 30, 2015 and 2014, respectively.
44
7. EMPLOYEE BENEFIT PLANS
PENSION PLAN
PLAN DESCRIPTION
The Electric Power Board of Chattanooga Retirement Plan (the “Plan’’) is a single-employer defined
benefit pension plan. The Plan provides retirement benefits to all employees who have completed six
months of employment. The Plan assigns the authority to establish and amend benefit provisions to the
EPB Board of Directors. A stand-alone Financial Report is not issued for this plan.
BENEFITS PROVIDED
The Plan provides retirement and death benefits. The normal monthly retirement benefit formula shall
provide that each Participant will receive a monthly payment in the form of a single life annuity with sixty
monthly guaranteed payments and the amount of the monthly payments shall be computed at the rate of
2% of final monthly salary for the first twenty years of service; 1.25% of final monthly salary for the next
ten years of service; 0.5% of final monthly salary for the next five years of service (maximum 35 years).
A participant who has completed five or more years of credited service and who has attained age fifty-five
may, with management consent, be entitled to receive an early retirement benefit commencing upon
the early retirement date. The early retirement benefit of such participant shall be equal to the amount
of the accrued benefit reduced by 0.4% for each month by which the early retirement date precedes the
normal retirement date.
The death benefit shall be a survivor annuity benefit, as defined by the Plan, if vested and married under
prescribed conditions.
Final monthly salary is the three-year average of base salary, excluding overtime or extra compensation,
on the actual retirement date and the two previous August 1sts. If applicable, commissions are included
in the definition of base salary. Credited service is the total years of service from hire date to
determination date. Partial years are rounded up to complete years of service. The normal retirement
date is the first day of the month coincident with or next following the later of the participant’s 65th
birthday or having five years of participation in the Plan. For a participant who elects to retire later than
the normal retirement date, the date shall be the first day of the month coinciding with or next following
the participant’s last day of employment. A participant shall be 100% vested after five complete years
of employment.
45
EMPLOYEES COVERED BY BENEFIT TERMS
At June 30, 2015, the following employees were covered by the benefit terms:
Number of
Employees
Inactive employees or beneficiaries currently receiving benefits
15
Inactive employees entitled to but not yet receiving benefits
125
Active employees
524
Total
664
CONTRIBUTIONS
The contribution requirements of plan members and EPB are established and may be amended by the
EPB Board of Directors. Plan members are not required to contribute to the Plan. EPB’s contributions are
calculated based on an actuarially determined rate, which is currently 10.33% of annual covered payroll.
NET PENSION LIABILITY
EPB’s net pension liability was measured as of August 1, 2014, and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of that date.
The total pension liability in the August 1, 2014 actuarial valuation was determined using the following
actuarial assumptions, applied to all periods included in the measurement:
Inflation
1.5%
Salary Increase
3.0%
Investment Rate of Return
7.5%
Mortality rates were based on the UP-1984 Mortality Table for Males or Females.
The actuarial assumptions used in the August 1, 2014 valuation were based on the results of an actuarial
experience study for the period August 1, 2011 - July 31, 2013.
The long-term expected rate of return on pension plan investments was determined using a building block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of
pension plan investment expense and inflation) are developed for each major asset class. These ranges
are combined to produce the long-term expected rate of return by weighting the expected future real rates
of return by the target asset allocation percentage and by adding expected inflation. The target allocation
and best estimates of arithmetic real rates of return for each major asset class are summarized in the
following table :
46
Asset Class
Long-Term Expected
Real Rate of Return
Target Allocation
Domestic equity
40-50
%
6.2
%
International equity
20-30
%
5.9
%
Fixed income
20-30
%
1.9
%
Real estate
0-10
%
5.1
%
Cash
0-10
%
0.0
%
The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows
used to determine the discount rate assumed that EPB contributions will be made at rates equal to the
actuarially determined contribution rate. Based on those assumptions, the pension plan’s fiduciary net
position was projected to be available to make all projected future benefit payments of current active and
inactive employees. Therefore, the long-term expected rate of return on pension plan investments was
applied to all periods of projected benefit payments to determine the total pension liability.
The following table shows the changes in the net pension liability (in thousands of dollars) :
Total Pension
Liability
Balances at 6/30/2014
$
41,167
Plan Fiduciary
Net Position
$
35,394
Net Pension
Liability
$
5,773
Changes for the year:
Service Cost
2,395
-
2,395
Interest
3,637
-
3,637
Differences between
expected and experience
3,608
-
3,608
Contributions-employer
-
3,630
(3,630)
Net investment income
-
5,735
(5,735)
(2,455)
(2,455)
-
-
(86)
86
7,185
6,824
361
Benefit payments
Administrative expense
Net changes
Balances at 6/30/2015
$
48,352
$
42,218
$
6,134
47
The following presents the net pension liability of the Plan, calculated using the discount rate of 7.5
percent, as well as what the Plan’s net pension liability would be if it were calculated using a discount
rate that is 1-percentage-point lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the
current rate (in thousands of dollars):
1% Decrease
(6.5%)
Net pension liability (asset)
$
14,911
Current Discount
Rate (7.5%)
6,134
$
1% Increase
(8.5%)
$
(4,644)
PENSION EXPENSE AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED
INFLOWS OF RESOURCES RELATED TO PENSIONS
For the year ended June 30, 2015, EPB recognized pension expense of $3.0 million. At June 30, 2015,
EPB reported deferred outflows of resources and deferred inflows of resources related to pensions from
the following sources (in thousands of dollars):
Deferred Outflows
of Resources
Difference between expected and
actual experience
$
3,397
Net difference between projected and actual
earnings on pension plan investments
TOTAL
Deferred Inflows
of Resources
$
3,397
$
2,426
$
2,426
Amounts reported as deferred outflows of resources and deferred inflows of resources related to
pensions will be recognized in pension expense as follows (in thousands of dollars) :
Fiscal Year
2016
Amount
$
(395)
2017
(395)
2018
(395)
2019
(395)
2020
211
Thereafter
Total
2,340
$
971
Deferred outflows of resources totaling $3.7 million represent contributions made after the Plan’s
valuation date. These contributions will be used to reduce the net pension liability during 2016.
48
PAYABLE TO THE PENSION PLAN
At June 30, 2015, EPB reported no payable balances for required outstanding contributions to the Plan.
PENSION PLAN’S FUNDED STATUS USING TERMINATION BASIS
An exact calculation of the Actuarial Accrued Liability exclusively based on past service and compensation
would be the Plan liability if the Plan were to terminate or cease recognition of future service accruals
and compensation increases. As of August 1, 2014, this Actuarial Accrued Liability has been calculated
to be $37.3 million; with the Actuarial Value of Plan Assets being $42.2 million. Therefore, the Actuarial
Accrued Liability strictly devoted to past service and compensation is entirely covered by Plan Assets.
401(K) PLAN
Effective August 1, 1984, EPB implemented a 401(k) defined contribution plan, the EPB Retirement
Savings Plan, which allows employees to invest up to 100% of their salary in a tax-deferred savings plan.
EPB contributes a 100% matching contribution up to 4.0% of an employee’s salary after one year of
employment. All employees who have completed three months of employment and have attained age 18
are eligible to participate in the 401(k) defined contribution plan. Participating employees are
immediately fully vested in EPB contributions, which amounted to approximately $1.2 million and $1.0
million in fiscal years 2015 and 2014, respectively. Employee contributions were approximately $2.8
million and $2.6 million in fiscal years 2015 and 2014, respectively. The EPB Retirement Savings Plan is
administered by an individual designated by the EPB Board of Directors. The EPB Retirement Savings Plan
assigns the authority to establish and amend the plan to the EPB Board of Directors.
49
50
8. POST-EMPLOYMENT BENEFITS
The Electric Power Board of Chattanooga Post Employment Health and Welfare Benefit Plan (“Plan”) is
a single-employer defined benefit healthcare and welfare plan administered by an individual designated
by the EPB Board of Directors. The Plan provides health and life insurance benefits. These benefits are
subject to deductibles, co-payments provisions, and other limitations. Eligible retirees and their dependents
may continue healthcare coverage through EPB, and retirees after July 1, 1994 received a death benefit
from the Plan. The Plan assigns the authority to establish and amend benefit provisions to the EPB Board of
Directors. A stand-alone Financial Report is not issued for this Plan.
The contribution requirements of Plan members and EPB are established and may be amended by EPB.
Plan members receiving benefits contribute based on retiree’s age, retirement date, and years of service.
Contribution rates for FY 2015 are as shown in the table below.
Retirement
Before
March 1, 1991
Category
Retirement After March 1, 1991
Years of Service/Percent of Contributions
5-9/85%
10-14/75%
15-19/55%
20-24/35%
25+/15%
Pre-Age 65EPO
Individual
$
—
$
402.05
$
354.75
$
260.15
$
165.55
$
70.95
Employee
+1
—
804.10
709.50
520.30
331.10
141.90
Family
—
1,206.15
1,064.25
780.45
496.65
212.85
Pre-Age 65PPO
Individual
$
—
$
321.64
Employee
+1
—
643.28
Family
—
964.92
Retirement
Before
March 1, 1991
Category
$
283.80
$
208.12
$
132.44
$
56.76
567.60
416.24
264.88
113.52
851.40
624.36
397.32
170.28
15-19/57.5%
20-24/37.5%
25+/17.5%
$
$
Retirement After March 1, 1991
Years of Service/Percent of Contributions
5-9/85%
10-14/77.5%
Age 65 &
Over
Individual
Spouse
$
—
—
$
129.66
129.66
$
118.22
118.22
87.71
87.71
57.20
$
57.20
The required contribution is based on pay-as-you-go financing requirements. For FY 2015, EPB contributed
approximately $2.0 million (approximately 87 percent of total claims). Presently, EPB has the option of
prefunding a “Voluntary Employees’ Beneficiary Association Trust” (VEBA) to pay post-employment benefit
claims. During FY 2015, EPB had no additional funding to the VEBA for post-employment benefit claims.
26.69
26.69
EPB’s annual other post-employment benefit (OPEB) cost is calculated based on the annual required
contribution of the employer (ARC), an amount actuarially determined in accordance with the
parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing
basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or
funding excess) over a period not to exceed twenty years.
The following table shows the components of EPB’s annual OPEB cost for the year, the amount actually
contributed to the Plan, and changes in EPB’s net OPEB obligation to the Plan (in thousands of dollars):
Annual required contribution
$
1,755
Interest on net OPEB obligation
609
Adjustment to annual required contribution
(799)
Annual OPEB cost (expense)
1,565
Contributions made
2,036
Decrease in net OPEB obligation
(471)
Net OPEB obligation – beginning of year
9,365
Net OPEB obligation – end of year
$
8,894
EPB’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net
OPEB obligation for FY 2015 and the four preceding years were as follows (in thousands of dollars):
FY Ended
6/30/15
Annual
OPEB Cost
$
Percentage of Annual
OPEB Cost Contribution
Net OPEB
Obligation
1,565
130%
6/30/14
2,039
85%
$
9,365
8,894
6/30/13
1,999
95%
9,055
6/30/12
1,888
93%
8,955
6/30/11
1,764
125%
8,830
The funded status of the Plan as of July 1, 2014, was as follows (in thousands of dollars):
Actuarial accrued liability (AAL)
$
24,688
Actuarial value of plan assets
$
19,213
Unfunded actuarial accrued liability (UAAL)
$
5,475
$
36,556
Funded ratio (actuarial value of plan assets/AAL)
Covered payroll (active plan members)
UAAL as a percentage of covered payroll
78%
15%
51
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into the future. Examples include
assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined
regarding the funded status of the plan and the annual required contributions of the employer are subject
to continual revision, as actual results are compared with past expectations and new estimates are made
about the future. The schedule of funding progress presents multi-year trend information about whether
the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued
liabilities for benefits.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
understood by the employer and the plan members) and include the types of benefits provided at the time
of each valuation and the historical pattern of sharing of benefit costs between the employer and plan
members to that point. The actuarial methods and assumptions used include techniques that are designed
to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets,
consistent with the long-term perspective of the calculations.
In the July 1, 2014 actuarial valuation, the projected unit credit cost method was used. The actuarial
assumptions included a 6.5% investment rate of return, which is a blended rate of the expected longterm investment returns on plan assets and on the employer’s own investments calculated based on the
funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 7.5% initially,
reduced by decrements of 0.25% per year to an ultimate rate of 5.5% in 2023. The actuarial value of
assets was determined using techniques that spread the effect of short-term volatility in the market value
of investments over a three-year period. The UAAL is being amortized as a level dollar. The remaining
amortization period at July 1, 2014 was twenty years.
52
9. COMMITMENTS AND CONTINGENCIES
EPB is party to a contract with TVA dated January 17, 1989, under which the Electric System purchases
electric power and energy from TVA for resale. The contract may be terminated by either party at any time
upon not less than ten years prior written notice.
EPB is presently involved in certain legal matters, the outcome of which is not presently determinable. It is
the opinion of management, based in part on the advice of legal counsel, that these matters will not have a
materially adverse effect on the results of operations or the financial position of EPB.
10. RISK MANAGEMENT
Risk of losses for EPB include many different facets: damage to equipment, destruction of assets, torts,
theft of equipment or property, errors and omissions, medical benefits, employees’ injuries, and disasters
from natural causes.
Pursuant to the Tennessee Governmental Tort and Liability Act, EPB’s maximum corporate liability is set
at $300,000 per person for bodily injury ($700,000 per incident) and $100,000 for destruction of property
for incidents occurring after July 1, 2007. EPB has elected to self-insure this corporate liability. EPB’s
commercial property is covered for a total insured value of $144 million subject to a $100,000 deductible.
EPB’s Fiber Optics Division is insured with a $2 million aggregate, $4 million umbrella, and is subject to a
$2,500 deductible.
Settled claims have not exceeded this commercial coverage in fiscal years 2015 or 2014. There are no
significant claims liabilities outstanding at June 30, 2015.
EPB continues its self-insured programs for auto liability, on-the-job injuries, and health insurance.
EPB’s employee health plan is self funded, subject to stop loss insurance of $175,000 per covered life with
an additional $110,000 Aggregating Specific Attachment Point.
53
CHANGES IN THE BALANCES OF CLAIMS LIABILITIES FOR THESE THREE AREAS DURING THE
FISCAL YEARS ENDED JUNE 30, 2015 AND 2014 ARE AS FOLLOWS (in thousands of dollars):
Unpaid claims, June 30, 2013
$
Incurred claims (including IBNRs)
6,914
Claim payments
(6,886)
1,370
Incurred claims (including IBNRs)
7,271
Claim payments
1,342
(6,800)
$
1,841
11. FEDERAL EMERGENCY MANAGEMENT ASSISTANCE GRANT
During February 2011 and April 2011, EPB sustained extensive power outages and equipment damage
as a result of a series of tornados. EPB incurred costs of approximately $28.0 million to restore power to
approximately 191,000 customers collectively. Due to the significance of the storms and the resulting
damage, EPB applied for assistance from the Federal Emergency Management Agency (FEMA). At June
30, 2015 and 2014, EPB included approximately $4.8 million and $6.7 million, respectively, in FEMA grants
receivable.
12. SUBSEQUENT EVENTS
In August 2015, EPB issued Series 2015 A bonds for $218.9 million, Series 2015 B bonds for $15.4 million
and Series 2015 C bonds for $25.9 million. The Series C bonds will pay for substations, transformers, and
other system improvements. The Series A and B issues will be used to pay off most of the outstanding debt
from similar 2006 and 2008 bond issues, saving EPB an estimated $19.8 million in present day interest
expenses.
Subsequent to year-end, EPB collected all remaining grants receivable from FEMA.
54
|
REQUIRED
SUPPLEMENTAL
INFORMATION
55
R E Q U I R E D S U P P L E M E N TA L I N F O R M AT I O N |
SCHEDULE OF EPB CONTRIBUTIONS TO PENSION PLAN
LAST 10 FISCAL YEARS (IN THOUSANDS)
2015
Actuarially determined contribution
Contributions in relation to the actuarially determined contribution
Contribution deficiency (excess)
$
$
3,646
3,630
16
Covered-employee payroll
$
32,127
Contributions as a percentage of covered-employee payroll
11.30%
NOTES TO SCHEDULE:
Valuation Date
Actuarially determined contribution rates are calculated as of August 1, 23 months prior to the end of the fiscal year in which contributions are reported.
METHODS AND ASSUMPTIONS USED TO DETERMINE CONTRIBUTION RATES:
Actuarial cost method
Entry age
Asset valuation method
Three year smoothing
Inflation
1.5%
Salary increases
3.0%
Investment rate of return
7.5%
Retirement age
3% per year for ages 57-61, 20% at age 62,
10% at ages 63 and 64, and 100% at age 65
Mortality
In the 2013 actuarial valuation, assumed life
expectancies were computed using the UP 1984 table
NOTES TO SCHEDULE:
This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively.
Years will be added to this schedule in future fiscal years until 10 years of information is available.
56
EPB SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS
LAST 10 FISCAL YEARS (IN THOUSANDS)
2015
TOTAL PENSION LIABILITY
Service cost
Interest
Changes of benefit terms
Differences between expected and actual experience
Changes of assumptions
Benefit payments, including refunds of employee contributions
NET CHANGE IN TOTAL PENSION LIABILITY
TOTAL PENSION LIABILITY - BEGINNING
TOTAL PENSION LIABILITY - ENDING (a)
PLAN FIDUCIARY NET POSITION
Contributions - employer
Net investment income
Benefit payments, including refunds of employee contributions
Administrative expense
NET CHANGE IN PLAN FIDUCIARY NET POSITION
$
$
$
2,395
3,637
3,608
(2,455)
7,185
41,167
48,352
3,630
5,735
(2,455)
(87)
6,823
PLAN FIDUCIARY NET POSITION - BEGINNING
PLAN FIDUCIARY NET POSITION - ENDING (b)
$
35,395
42,218
EPB’S NET PENSION LIABILITY - ENDING (a) - (b)
$
6,134
PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF THE TOTAL PENSION LIABILITY
COVERED-EMPLOYEE PAYROLL
87.31%
$
NET PENSION LIABILITY AS A PERCENTAGE OF COVERED-EMPLOYEE PAYROLL
NOTES TO SCHEDULE:
Benefit changes. None
Changes of assumptions. None
This is a 10-year schedule, however, the information in this schedule is not required to be presented
retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available.
32,127
19.09%
57
SCHEDULE OF FUNDING PROGRESS FOR EPB POST-EMPLOYMENT HEALTH AND
WELFARE BENEFIT PLAN (in thousands of dollars):
Actuarial
Valuation
Date
7/1/14
(1)
Actuarial Value
of Plan Assets
$
19,213
(2)
Actuarial
Accrued Liability
(AAL)
$
24,688
(3)
Unfunded
AAL (UAAL)
(2) – (1)
$
(4)
Funded
Ratio
(1) / (2)
5,475
77.8%
(5)
Annual
Covered
Payroll
$
(6)
UAAL as a %
of Covered
Payroll (3)/(5)
36,556
15.0%
7/1/13
16,754
27,104
10,350
61.8%
34,441
30.0%
7/1/12
15,045
25,463
10,418
59.1%
32,045
32.5%
7/1/11
14,604
24,667
10,063
59.2%
29,998
33.5%
7/1/10
13,081
23,128
10,047
56.6%
28,267
35.5%
7/1/09
13,051
24,044
10,993
54.2%
25,629
42.9%
7/1/08
14,675
26,264
11,589
55.8%
24,325
47.6%
58
|
SUPPLEMENTAL
INFORMATION
59
S U P P L E M E N TA L I N F O R M AT I O N |
EPB ELECTRIC SYSTEM SCHEDULES OF NET POSITION
AS OF JUNE 30, 2015 AND 2014
2015
CURRENT ASSETS
doubtful accounts of $765,000 and $705,000
Grants receivable
Materials and supplies, at average cost
$
NON-CURRENT ASSETS
Net utility plant
Other non-current assets
CURRENT LIABILITIES
Accounts payable Tennessee Valley Authority, for power purchased
Other
Customer deposits
Revenue bonds, current portion
$
99,120,000
21,459,000
37,096,000
4,819,000
13,066,000
4,550,000
158,461,000
25,983,000
32,194,000
6,694,000
12,809,000
4,947,000
181,747,000
824,938,000
(289,101,000)
535,837,000
2,676,000
538,513,000
789,141,000
(270,648,000)
518,493,000
2,580,000
521,073,000
6,206,000
3,176,000
$
703,180,000
$
705,996,000
$
77,469,000
9,384,000
3,239,000
8,075,000
17,746,000
4,230,000
8,590,000
128,733,000
$
77,299,000
9,149,000
3,135,000
7,040,000
16,740,000
4,325,000
6,938,000
124,626,000
Revenue bonds, net
Customer deposits
NET POSITION
Unrestricted
77,471,000
2014
$
262,318,000
5,367,000
7,097,000
22,176,000
4,576,000
301,534,000
270,757,000
5,051,000
7,744,000
21,647,000
5,544,000
310,743,000
2,123,000
-
265,444,000
5,346,000
270,790,000
240,696,000
29,931,000
270,627,000
703,180,000
$
705,996,000
60
EPB ELECTRIC SYSTEM SCHEDULES OF REVENUES, EXPENSES, AND CHANGES IN
NET POSITION FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015
OPERATING REVENUES
Electric Sales
Residential
Small commercial
Large commercial
Outdoor lighting systems
Total billed electric sales
$
Change in unbilled electric sales
Less uncollectible electric sales
Total electric sales
231,864,000
45,460,000
256,158,000
6,069,000
539,551,000
2014
$
237,376,000
45,631,000
259,676,000
6,229,000
548,912,000
4,902,000
(610,000)
543,843,000
23,278,000
567,121,000
(2,340,000)
(720,000)
545,852,000
20,667,000
566,519,000
OPERATING EXPENSES
Operation
Power purchased from Tennessee Valley Authority
Other operation expenses
Maintenance
443,970,000
35,292,000
22,023,000
35,245,000
11,529,000
548,059,000
19,062,000
436,507,000
38,754,000
27,051,000
33,662,000
10,886,000
546,860,000
19,659,000
OTHER REVENUES (DEDUCTIONS)
Interest revenue on invested funds
Interest expense on long-term debt
Other, net
Plant cost recovered through contributions in aid of construction
197,000
(12,980,000)
210,000
(738,000)
263,000
(12,082,000)
207,000
(1,741,000)
Total other deductions
(13,311,000)
(13,353,000)
5,751,000
6,306,000
(6,326,000)
738,000
163,000
(5,910,000)
1,741,000
2,137,000
270,627,000
-
271,388,000
(2,898,000)
INCOME BEFORE TRANSFERS AND CONTRIBUTIONS
CONTRIBUTIONS IN AID OF CONSTRUCTION
$
270,790,000
$
270,627,000
61
EPB ELECTRIC SYSTEM SCHEDULES OF CASH FLOWS
2015
$
Removal cost
Salvage
Contributions in aid of construction
Bond principal payment
Bond interest payment
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments
Miscellaneous non-operating expenses, net
Grants receivable
Materials and supplies
Other charges
Customer deposits
Other credits
NET CASH PROVIDED BY OPERATING ACTIVITIES
569,323,000
(467,852,000)
(33,083,000)
(16,849,000)
51,539,000
2014
$
565,730,000
(467,354,000)
(29,685,000)
(16,453,000)
52,238,000
(53,805,000)
(910,000)
464,000
738,000
(7,040,000)
(12,832,000)
(73,385,000)
(60,000,000)
(258,000)
563,000
1,741,000
(6,000,000)
(13,084,000)
(77,038,000)
197,000
291,000
(21,649,000)
99,120,000
(24,509,000)
123,629,000
$
77,471,000
$
99,120,000
$
19,062,000
$
19,659,000
$
36,389,000
210,000
(6,326,000)
35,756,000
207,000
(5,910,000)
4,524,000
(4,902,000)
1,875,000
(257,000)
429,000
(96,000)
(421,000)
633,000
1,006,000
1,652,000
(968,000)
(624,000)
(647,000)
(4,537,000)
2,341,000
1,045,000
(331,000)
929,000
66,000
4,585,000
(546,000)
341,000
(936,000)
(554,000)
123,000
51,539,000
$
52,238,000
62
EPB TELECOM SYSTEM SCHEDULES OF NET POSITION
AS OF JUNE 30, 2015 AND 2014
2015
ASSETS
CURRENT ASSETS
doubtful accounts of $11,000
$
NON-CURRENT ASSETS
Net utility plant
TOTAL ASSETS
LIABILITIES AND NET POSITION
CURRENT LIABILITIES
Accounts payable
Line of credit
Notes payable
$
193,000
1,147,000
157,000
2,641,000
986,000
95,000
1,274,000
18,815,000
(12,061,000)
6,754,000
21,634,000
(13,639,000)
7,995,000
$
9,395,000
$
9,269,000
$
255,000
679,000
171,000
1,105,000
$
405,000
742,000
6,000
232,000
3,833,000
152,000
5,370,000
Notes payable
Unearned revenue
NET POSITION
Net investments in capital assets
Unrestricted
TOTAL LIABILITIES AND NET POSITION
1,337,000
2014
$
388,000
388,000
944,000
347,000
1,291,000
6,754,000
1,148,000
7,902,000
7,995,000
(5,387,000)
2,608,000
9,395,000
$
9,269,000
63
EPB TELECOM SYSTEM SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET
POSITION FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015
OPERATING REVENUES
Fiber optics sales
Commercial basic local services revenue
Commercial long distance message revenue
Total billed fiber optics sales
Less uncollectible accounts
$
13,215,000
835,000
14,050,000
(34,000)
14,016,000
2014
$
11,735,000
712,000
12,447,000
(17,000)
12,430,000
Other operating revenue
2,068,000
2,061,000
16,084,000
14,491,000
2,247,000
4,112,000
332,000
3,387,000
406,000
10,484,000
5,600,000
2,112,000
4,052,000
348,000
3,351,000
440,000
10,303,000
4,188,000
(33,000)
(110,000)
INCOME BEFORE TRANSFERS
5,567,000
(273,000)
4,078,000
(302,000)
5,294,000
3,776,000
2,608,000
(1,168,000)
OPERATING EXPENSES
Cost of services
Operation expenses
General and administrative
OTHER DEDUCTIONS
Interest expense on long-term debt and line of credit
$
7,902,000
$
2,608,000
64
EPB TELECOM SYSTEM SCHEDULE OF CASH FLOWS
2015
$
Interest paid on long-term debt
Interest paid on line of credit
Changes in line of credit, net
Other credits
15,922,000
(6,842,000)
(742,000)
8,338,000
2014
$
14,565,000
(7,257,000)
(817,000)
6,491,000
(2,146,000)
(31,000)
(8,000)
(232,000)
(4,777,000)
(7,194,000)
(962,000)
(114,000)
(3,000)
232,000
(6,084,000)
(6,931,000)
1,144,000
193,000
(440,000)
633,000
$
1,337,000
$
193,000
$
5,600,000
$
4,188,000
$
3,387,000
(273,000)
3,351,000
(302,000)
(161,000)
(62,000)
(150,000)
(63,000)
19,000
41,000
77,000
11,000
(792,000)
(75,000)
(17,000)
50,000
8,338,000
$
6,491,000
65
EPB VIDEO & INTERNET SYSTEM SCHEDULES OF NET POSITION
AS OF JUNE 30, 2015 AND 2014
2015
CURRENT ASSETS
$
NON-CURRENT ASSETS
Net utility plant
CURRENT LIABILITIES
Accounts payable
$
144,000
5,280,000
1,058,000
6,448,000
5,091,000
1,087,000
6,322,000
102,601,000
(32,099,000)
70,502,000
88,667,000
(21,693,000)
66,974,000
891,000
454,000
$
77,841,000
$
73,750,000
$
6,113,000
893,000
115,000
3,546,000
10,667,000
$
6,254,000
791,000
132,000
3,182,000
10,359,000
Line of credit
Accrued post employment benefit obligation
Deferred credits
NET POSITION
Unrestricted
110,000
2014
$
36,725,000
767,000
1,797,000
4,118,000
43,407,000
45,875,000
722,000
1,621,000
3,385,000
51,603,000
303,000
-
70,502,000
(47,038,000)
23,464,000
66,974,000
(55,186,000)
11,788,000
77,841,000
$
73,750,000
66
EPB VIDEO & INTERNET SYSTEM SCHEDULES OF REVENUES, EXPENSES, AND CHANGES
IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015
OPERATING REVENUES
Fiber optics sales
Residential services revenue
$
2014
13,077,000
80,904,000
93,981,000
$
11,722,000
67,002,000
78,724,000
(825,000)
93,156,000
(845,000)
77,879,000
8,985,000
7,513,000
102,141,000
85,392,000
40,690,000
34,002,000
1,776,000
12,134,000
605,000
89,207,000
12,934,000
32,443,000
25,571,000
1,859,000
11,722,000
529,000
72,124,000
13,268,000
(948,000)
(1,587,000)
11,986,000
(310,000)
11,681,000
(274,000)
11,676,000
11,407,000
11,788,000
649,000
-
(268,000)
OPERATING EXPENSES
Cost of services
Operation expenses
OTHER DEDUCTIONS
Interest expense on long-term debt
$
23,464,000
$
11,788,000
67
EPB VIDEO & INTERNET SYSTEM SCHEDULES OF CASH FLOWS
2015
$
Other credits
101,937,000
(69,994,000)
(5,389,000)
(811,000)
25,743,000
2014
$
84,687,000
(52,499,000)
(4,822,000)
(755,000)
26,611,000
(15,584,000)
(1,043,000)
(9,150,000)
(25,777,000)
(18,980,000)
(1,760,000)
(5,953,000)
(26,693,000)
(34,000)
144,000
(82,000)
226,000
$
110,000
$
144,000
$
12,934,000
$
13,268,000
$
12,134,000
(310,000)
11,722,000
(274,000)
(189,000)
29,000
(141,000)
102,000
364,000
733,000
(89,000)
176,000
(659,000)
(142,000)
1,332,000
49,000
406,000
722,000
187,000
25,743,000
$
26,611,000
68
EPB FIBER OPTICS SYSTEM SCHEDULES OF NET POSITION
AS OF JUNE 30, 2015 AND 2014
2015
CURRENT ASSETS
$
NON-CURRENT ASSETS
Net utility plant
CURRENT LIABILITIES
Accounts payable
Line of credit
Notes payable - other
$
337,000
6,427,000
1,215,000
9,089,000
6,077,000
1,182,000
7,596,000
121,416,000
(44,160,000)
77,256,000
110,301,000
(35,332,000)
74,969,000
891,000
454,000
$
87,236,000
$
83,019,000
$
6,368,000
1,572,000
115,000
3,717,000
11,772,000
$
6,659,000
1,533,000
138,000
232,000
3,833,000
3,334,000
15,729,000
Notes payable - other
Line of credit
NET INFLOWS OF RESOURCES
NET POSITION
Net invesment in capital assets
Unrestricted
1,447,000
2014
$
36,725,000
767,000
1,797,000
4,506,000
43,795,000
944,000
45,875,000
722,000
1,621,000
3,732,000
52,894,000
303,000
-
77,256,000
(45,890,000)
31,366,000
74,969,000
(60,573,000)
14,396,000
87,236,000
$
83,019,000
69
EPB FIBER OPTICS SYSTEM SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN
NET POSITION, FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015
OPERATING REVENUES
Fiber optics sales
Commercial long distance message revenue
Residential services revenue
$
2014
26,292,000
835,000
80,904,000
108,031,000
(859,000)
107,172,000
$
23,457,000
712,000
67,002,000
91,171,000
(862,000)
90,309,000
Other operating revenue
11,053,000
9,574,000
118,225,000
99,883,000
42,937,000
38,114,000
2,108,000
15,521,000
1,011,000
99,691,000
18,534,000
34,555,000
29,623,000
2,207,000
15,073,000
969,000
82,427,000
17,456,000
(981,000)
(1,697,000)
17,553,000
(583,000)
15,759,000
(576,000)
16,970,000
15,183,000
14,396,000
(519,000)
-
(268,000)
OPERATING EXPENSES
Cost of services
Operation expenses
OTHER DEDUCTIONS
Interest expense on long-term debt and line of credit
$
31,366,000
$
14,396,000
70
EPB FIBER OPTICS SYSTEM SCHEDULES OF CASH FLOWS
2015
$
Interest paid on long-term debt
$
99,252,000
(59,756,000)
(4,822,000)
(1,572,000)
33,102,000
(17,730,000)
(31,000)
(1,051,000)
(9,382,000)
(4,777,000)
(32,971,000)
(19,942,000)
(114,000)
(1,763,000)
(5,721,000)
(6,084,000)
(33,624,000)
1,110,000
337,000
(522,000)
859,000
$
1,447,000
$
337,000
$
18,534,000
$
17,456,000
Other credits
117,859,000
(76,836,000)
(5,389,000)
(1,553,000)
34,081,000
2014
$
15,521,000
(583,000)
15,073,000
(576,000)
(350,000)
(33,000)
(291,000)
39,000
383,000
774,000
(89,000)
176,000
(582,000)
(131,000)
540,000
(26,000)
389,000
772,000
187,000
34,081,000
$
33,102,000
71
EPB SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Federal Grantor/Pass-Through Grantor/
Pass-Through Grantor/Program Title
Federal
CFDA
Number
Agency or
Pass-Through
Accrued
Grant
Revenues
June 30, 2014
Grant
Revenues
Received
Accrued
Grant
Revenues
June 30, 2015
Expenditures
U.S. DEPARTMENT OF ENERGY:
Electric Delivery and Energy Reliability,
Research, Development and Analysis
81.22
DE-OE0000215
Total U.S. Department of Energy
$
4,997
$
4,997
$
4,997
$
4,997
$
-
$
-
-
-
-
U.S. DEPARTMENT OF HOMELAND SECURITY:
Passed through Tennessee Department
of the Military, Tennessee Emergency
Management Agency:
Disaster Grant - Public Assistance
(Presidentially Declared Disasters)
97.036
Not Available
477,069
477,069
Disaster Grant - Public Assistance
(Presidentially Declared Disasters)
97.036
Not Available
6,700,425
1,392,498
5,307,927
7,177,494
1,869,567
5,307,927
$7,182, 491
$1,874,564
Total Disaster Grants - Public
Assistance (Presidentially
Declared Disasters)
Total Expenditures of
Federal Awards
$
-
$5,307,927
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
The accompanying schedule of expenditures of federal awards includes the federal grant activity of the
Electric Power Board of Chattanooga and is presented on the accrual basis of accounting. Some amounts
presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic
financial statements. Where applicable, the Electric System’s accounting records follow the Federal Energy
Regulatory Commission’s Uniform System of Accounts Prescribed for Public Utilities.
72
EPB SCHEDULE OF BONDS PAYABLE AS OF JUNE 30, 2015 (IN THOUSANDS)
Fiscal Year
Ended
June 30
Issue
Interest
Rate
2016
2006A Electric System
Revenue Bonds
4.125%
Due
Interest
Principal
$
1,345,000
$
1,401,000
Total Interest
and Principal
$
2,746,000
2017
4.125%
1,400,000
1,345,000
2,745,000
2018
4.125%
1,460,000
1,286,000
2,746,000
2019
4.125%
1,520,000
1,224,000
2,744,000
2020
4.250%
1,585,000
1,159,000
2,744,000
2021
4.250%
1,655,000
1,090,000
2,745,000
2022
4.375%
1,730,000
1,017,000
2,747,000
2023
4.500%
1,805,000
939,000
2,744,000
2024
4.250%
1,885,000
858,000
2,743,000
2025
4.375%
1,970,000
775,000
2,745,000
2026
4.375%
2,060,000
687,000
2,747,000
2027
4.375%
2,155,000
595,000
2,750,000
2028
4.375%
2,250,000
499,000
2,749,000
2029
4.375%
2,355,000
398,000
2,753,000
2030
4.375%
2,470,000
292,000
2,762,000
2031
4.500%
2,585,000
180,000
2,765,000
2032
4.500%
2,705,000
61,000
2,766,000
32,935,000
13,806,000
46,741,000
4.125%
1,730,000
711,000
2,441,000
2017
4.125%
1,715,000
640,000
2,355,000
2018
4.125%
1,705,000
569,000
2,274,000
2019
4.000%
1,690,000
501,000
2,191,000
2020
4.000%
1,670,000
433,000
2,103,000
2021
4.000%
1,655,000
367,000
2,022,000
2022
4.125%
1,635,000
300,000
1,935,000
2023
4.125%
1,620,000
233,000
1,853,000
2024
4.125%
1,600,000
166,000
1,766,000
2025
4.250%
1,580,000
100,000
1,680,000
2026
4.250%
1,560,000
33,000
1,593,000
18,160,000
4,053,000
22,213,000
2016
2006B Electric System
Refunding Revenue Bonds
73
EPB SCHEDULE OF BONDS PAYABLE AS OF JUNE 30, 2015 (IN THOUSANDS)
Fiscal Year
Ended
June 30
Issue
2016
2008A Electric System
Revenue Bonds
Interest
Rate
5.00%
Due
Interest
Principal
$
5,000,000
$
10,389,000
Total Interest
and Principal
$
15,389,000
2017
3.50%
6,275,000
10,155,000
16,430,000
2018
4.50%
6,575,000
9,897,000
16,472,000
2019
5.00%
6,955,000
9,575,000
16,530,000
2020
5.00%
7,385,000
9,217,000
16,602,000
2021
5.00%
7,835,000
8,836,000
16,671,000
2022
5.00%
8,310,000
8,432,000
16,742,000
2023
5.00%
8,805,000
8,005,000
16,810,000
2024
5.00%
9,335,000
7,551,000
16,886,000
2025
5.00%
9,885,000
7,071,000
16,956,000
2026
5.00%
10,460,000
6,562,000
17,022,000
2027
5.00%
12,605,000
5,985,000
18,590,000
2028
5.00%
13,235,000
5,339,000
18,574,000
2029
5.00%
13,890,000
4,661,000
18,551,000
2030
5.00%
14,575,000
3,950,000
18,525,000
2031
5.00%
15,295,000
3,203,000
18,498,000
2032
5.00%
16,055,000
2,419,000
18,474,000
2033
5.00%
19,685,000
1,526,000
21,211,000
2034
5.00%
20,670,000
517,000
21,187,000
212,830,000
123,290,000
336,120,000
$
263,925,000
$
141,149,000
$
405,074,000
74
I N D E P E N D E N T AU D I TO R ’S R E P O RT O N I N T E R N A L CO N T RO L |
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE
AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Board of Directors, Electric Power Board of Chattanooga
Independent Auditor’s Report
We have audited, in accordance with the auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standard issued by the Comptroller
General of the United States, the financial statements of the Electric Power Board (“EPB”, an enterprise fund of the
City of Chattanooga) as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial
statements, which collectively comprise EPB’s basic financial statements, and have issued our report thereon dated
September 11, 2015.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered EPB’s internal control over financial
reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the
purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on
the effectiveness of EPB’s internal control. Accordingly, we do not express an opinion on the effectiveness of EPB’s
internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control
such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not
be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by
those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies.
Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be
material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether EPB’s financial statements are free from material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements, noncompliance with which could have a direct and material effect on the determination of financial
statement amounts. However, providing an opinion on compliance with those provisions was not an objective of
our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the
results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance.
This report is an integral part of an audit performed in compliance with Government Auditing Standards in considering
the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
September 11, 2015
75

financial report

Transcription

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